Public Policy Implications Of The Christchurch Quake

The tragic events in Christchurch will
have implications for the government and councils in the
region for years to come. Public policies could help or
hinder the recovery process.

The earthquake has
highlighted the risks in the government’s strategy of
reacting to the global financial crisis in a gradual
fashion. Unexpected events like droughts, biosecurity
threats, oil price shocks and other crises are a routine
part of economic life.

Policy needs to be framed so as to
be able to cope with such events, not to assume a
continuation of the status quo. In particular, the current
high level of central government spending and borrowing –
the latter amounting to a massive $300 million a week – is
not a good starting point for dealing with
reconstruction.

On the other hand, it makes sense for
monetary policy to be eased if inflation threats have
receded, as it did after the GFC. Yesterday’s cut in the
official cash rate will help support activity, if only
modestly.

It is also pleasing that the government is
reviewing its spending plans. It should reprioritise its
spending just like a household that has to cope with a major
setback.

A large amount of government spending is wasteful
or poorly targeted.

Interest-free student loans and
Working for Families were politically motivated, not based
on sound public policy analysis.

Such reductions should
also take priority over tax increases to fund
reconstruction. These would dampen economic activity at a
time when the economy may again be in recession.

Capital
expenditure programmes should also be revisited. Investment
in rebuilding infrastructure in Christchurch may well yield
higher returns than, say, rail projects in Auckland,
Transmission Gully or broadband.

The government’s plans
to sell down its shareholding in several stateowned
enterprises make even more sense in present circumstances.
It does not need to be involved in commercial activities
whereas basic infrastructure is a core government
function.

The same argument applies to the assets of the
Christchurch City Council.

Reducing its shareholding in
its port, airport and electricity companies would free up
cash for repairs to local infrastructure without imposing
new burdens on ratepayers.

Other policy innovations could
be triggered by the earthquake. With some schools likely to
be closed for long periods, other schools will have to cope
with expanded intakes. There is no reason to rely only on
state schools to take up the slack. Some non-government
schools might also be able to do so if they were funded on
the same per-student basis as state schools.

Emergency
legislation is allowing much faster responses than are
usually possible. Orion is reported as building an
electricity line across Christchurch in a matter of days
whereas it might normally take two years merely to get a
resource consent for such a project. Housing may require
similar fast-track approval.

Experience with such projects
may point to the benefits of wider reforms of the Resource
Management Act. The strategy of some councils, including
Christchurch, of focusing development on central business
districts and imposing metropolitan urban limits may also be
called into question.

Auckland has been called a ‘city
of villages’ but there are clearly riskspreading
advantages in allowing decentralised development.

There
may be lessons here from the experience of Houston after
Hurricane Katrina. Its light-handed land use regulation
enabled the city to absorb thousands of New Orleans
‘refugees’ without putting pressure on house prices.
Walmart’s organisational capabilities also made a major
contribution to the recovery effort.

A broader issue is
the relative role of top-down and bottom-up strategies in
rebuilding Christchurch. Clearly the devastation is too vast
for a detailed centrally planned strategy to be viable.
Central and local government need to concentrate on their
vital roles and let markets work.

Since the September 4
earthquake there have already been stories of trades people
being idle while they wait for decisions by central
authorities.

Maximum freedom needs to be given to
businesses and communities to use their ingenuity to solve
local problems. The spontaneous efforts to date are hugely
impressive.

Similarly, the amazing contributions of
voluntary organisations, students, farmers, families and
individuals remind us of the vital role of private
initiative in welfare relative to the capabilities of state
agencies.

There is talk of a 10-15 year timeframe for
rebuilding Christchurch. This seems unacceptably long.
Devastated European cities after the last world war were
rebuilt in much faster time.

The reconstruction cost of
the earthquake, currently put at around $10-15 billion (with
some of it being covered by reinsurance) needs to be kept in
perspective. The self-inflicted economic cost of the Muldoon
government’s Think Big projects was of the order of $14
billion in current dollars.

These were an example of very
poor public policies. Good public policies, focused above
all on economic flexibility and growth, could greatly
alleviate the hardship that Christchurch faces and promote a
speedier recovery.

Roger Kerr is the executive director of
the New Zealand Business Roundtable. Check out his blog on
www.nzbr.org.nz

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